* FX hurt by China moves to curb lending
* Emerging Europe looks for rebound in 2010
(Updates throughout)
By Dagmara Leszkowicz and Marius Zaharia
WARSAW/BUCHAREST, Jan 20 (Reuters) - The Hungarian forint
led losses in Central Europe on Wednesday, hit by intra-region
cross trades and a drop in risk appetite following Chinese moves
to curb lending.
Central Europe's export-reliant economies suffered badly in
2009 but expectations of a modest rebound, reconfirmed by
policymakers again on Wednesday [], have helped
regional markets to rise since the start of the year.
Czech central bank vice governor Miroslav Singer told a
conference in Vienna he expected Czech growth of around 2
percent this year, while Romania's deputy Governor Cristian Popa
said he expected a 1.5 percent growth.
But traders' immediate focus was on a weakening of the euro
after Chinese official media and banking sources said banking
authorities in Beijing had instructed some major banks to curb
their lending over the rest of this month [].
At 1500 GMT, the forint <EURHUF=> was down 0.7 percent on
the day, the Polish zloty <EURPLN=> and the Romanian leu
<EURRON=> were 0.4 percent off and the Czech crown <EURCZK=> was
0.6 percent weaker.
Dealers explained the difference between the size of forint
and zloty moves by intra-region cross trades.
"The forint is sold and the zloty is bought," one
Budapest-based dealer said, adding that Poland's sounder
fundamentals and the different interest rate outlook fuelled the
cross-trades.
The zloty fall was also tempered by good results at a bond
auction on Wednesday [] and dealers expect it to
outperform in coming months.
"It's clear that the zloty has been able to rally, while the
crown has firmed from the bottom of a range. The forint and the
leu are in a separate group," another dealer in Budapest said.
"The forint is unable to follow the zloty where it is going."
Romania's leu <EURRON=> has outperformed regional peers,
gaining about 3 percent since the start of the year amid hopes
for the unlocking of an IMF-led aid package frozen by political
deadlock.
Markets are now watching for comments from International
Monetary Fund officials as the Fund starts a one-week mission in
Bucharest to review the 20 billion euro aid deal.
RATE OUTLOOK
Dealers said the Czech crown may find support from recent
comments by central bank governor Zdenek Tuma who said interest
rates have likely hit bottom.
"That increases the likelihood that the Czech central bank
will start the rate rise cycle significantly before the ECB,
which in turn is an argument in favour of a stronger crown,"
Commerzbank wrote.
Central banker Robert Holman said on Wednesday the bank may
begin monetary policy tightening in the second or third quarter
of 2010 and start with a 25 basis points hike []
Czech borrowing costs are at a record low, with the main two
week repo rate at 1 percent.
In Poland, analysts expect the central bank's Monetary
Policy Council (MPC) to raise interest rates from an all-time
low of 3.5 percent only in the second half of 2010.
New MPC member Jerzy Hausner said on Wednesday he saw no
reason for a rapid change in monetary policy [].
In debt markets, Hungarian bonds eased slightly, with yields
rising a few basis points, but have moved in tight ranges this
week, with the 3-10 year spread widening to 65-70 basis points,
indicating that demand focussed on the short end.
One trader said FRAs priced in a 25 basis point cut in the
central bank's 6.25 percent base rate at the next meeting on
Monday, and altogether 50 basis points for the next two months.
--------------------------MARKET SNAPSHOT--------------------
Currency Latest Previous Local Local
close currency currency
change change
today in 2010
Czech crown <EURCZK=> 25.948 25.784 -0.63% +1.43%
Polish zloty <EURPLN=> 4.021 4.006 -0.37% +2.06%
Hungarian forint <EURHUF=> 269.38 267.42 -0.73% +0.36%
Croatian kuna <EURHRK=> 7.325 7.271 -0.74% -0.22%
Romanian leu <EURRON=> 4.131 4.113 -0.44% +2.58%
Serbian dinar <EURRSD=> 97.28 96.91 -0.38% -1.44%
Yield Spreads
Czech treasury bonds <0#CZBMK=>
3-yr T-bond CZ3YT=RR +3 basis points to 74bps over bmk*
7-yr T-bond CZ7YT=RR +5 basis points to +130bps over bmk*
10-yr T-bond CZ10YT=RR +2 basis points to +117bps over bmk*
Polish treasury bonds <0#PLBMK=>
2-yr T-bond PL2YT=RR +6 basis points to +384bps over bmk*
5-yr T-bond PL5YT=RR +4 basis points to +322bps over bmk*
10-yr T-bond PL10YT=RR -1 basis points to +281bps over bmk*
Hungarian treasury bonds <0#HUBMK=>
3-yr T-bond HU3YT=RR +9 basis points to +537bps over bmk*
5-yr T-bond HU5YT=RR +8 basis points to +498bps over bmk*
10-yr T-bond HU10YT=RR +4 basis points to +441bps over bmk*
*Benchmark is German bond equivalent.
All data taken from Reuters at 1700 CET.
Currency percent change calculated from the daily domestic
close at 1600 GMT.
For related news and prices, click on the codes in brackets: All
emerging market news []
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(Reporting by Reuters bureaus, Writing by Dagmara Leszkowicz;
and Marius Zaharia; Editing by Toby Chopra)
